WHAT IS NFT? A BEGINNER’S GUIDE

NFT (Non-Fungible Token) are digital cryptographic assets. NFTs marketplace has exploded over the past few years after a rise in the market share of crypto-graphical assets (cryptocurrencies).

But are NFTs worth the money or just the hype people have created? Some experts have stated that they are just the hype, while some believe that NFTs are here to stay and are the horse of the long run. So let's know about this:

WHAT IS NFT?

Representation of real world objects (like art, music, game items and videos) in the form of a digital asset is known as NFT. These are termed modern-day collectables. Buying and selling NFTs showcases digital proof of ownership of any given item. These are encoded with the same technology behind the cryptocurrencies, making NFTs secure and reliable. Blockchain technology also makes it challenging to alter NFTs.

what is NFT?

NFTs have been in the market since 2014 but have not gained any representation. But they are getting considerable attention from the people because it is becoming a way to buy and sell digital artwork.

NFTs are the digital creations in digital media like iconic NBA games, video clips or securitized versions of digital arts that revolve around Instagram. But now the question arises of why someone would pay so much for an image they can screenshot or download?

Paying to the original creator allows the buyer to own the actual item. Not only that, the buyer gets the ownership of the NFT they are buying, and collectors value the original object rather than just the copy or a screenshot.

Now, let's become familiar with the concept of fungibility.

Fungible items: These are the items that can be exchanged with the other thing at ease because of their value as they don't possess uniqueness. Let's say you are interchanging your old bill with the new account of having the same amount (2$); now you have the changed bill with the same amount, i.e. 2$, through your bill's serial number.

Non-Fungible Items: These are items that cannot be exchanged with the other entity. Every item is unique in itself. NFTs are the perfect example of this as each token has a unique property, and also not, the first NFT is worth the same amount as the second NFT.

How does NFT be Different from Cryptocurrency?

NFT (Non-Fungible Token) is built with the same programming language as cryptocurrencies, like Bitcoin or Ethereum; this is where the similarity ends.

Like any fiat currencies, cryptocurrencies are "fungible" ( that they can be traded or exchanged with other currencies). They are also equal in value- one euro is always equal to another euro; similarly, one Bitcoin is always identical to another Bitcoin. The fungibility of crypto helps them be the trusted means of conducting transactions over the blockchain.

But, NFTs are different. They are not equal in value; every NFT is different from another. Digital signatures make them impossible to be exchanged for or similar to one another (that is why they are Non-fungible). Let's take a close look at this with an example; One Top shot clip of NBA is not equal to any other top shot clip because they are both NFTs and are different.

HOW DOES NFT WORK?

Blockchain is deemed to be the existence of NFTs, A distributed public ledger that records the transactions. You must have known how cryptos are made, as blockchain is the underlying process that makes them possible.

NFTs are majorly held on the Ethereum blockchain, but other blockchains also support them. NFTs are created on digital objects that are tangible and intangible, including:

• Art
• Gifs
• Videos and Sports highlights
• Collectables
• Music
• Virtual Avatars
• Video Game skins

You must have come through this news that Jack Dorsey's (co-founder of Twitter) first tweet was sold for more than $2.9 million as an NFT. NFTs are essentially digital versions of actual collectables. So the purchaser receives a digital file rather than an actual oil painting to display on the wall.

Additionally, they receive sole ownership rights. Yes, NFTs can only have one owner at a time. Due to the specific data of NFTs, it is simple to confirm ownership and transfer tokens between owners. Additionally, the author or owner may choose to store particular data inside them.

NFTs USED FOR?

Artists and content creators get a unique opportunity to monetize their content with NFTs. Previously, artists had to dwell in museums or art galleries to sell their art, and they sometimes had to wait for so long. But with the evolution of NFTs, an artist can sell their art directly to the customers as an NFT, which saves their time and help them to earn more profits. In addition, artists can also get a royalty every time someone buys their art, as this can be the most lucrative part.

Remember that art is not the only way to make money with NFTs. You can make anything mentioned above in the form of NFT and sell them. For example, Nyan Cat's Gif was sold for nearly $6,00,000 in February; NBA's Top Shot also generated more than $500 million in sales.

Not also sports, but even celebrities like Amitabh Bachchan, Snoop Dog etc., are hopping on the securitized NFT bandwagon and publishing original memories, artwork, and moments.

Does NFTs Worth Buy?

NFTs are risky due to the uncertainty in the digital asset's future, and there is no possible historical evidence to judge their performance. However, investing in NFTs is solely a personal decision, and if you have money to spare, you can buy one, not only if it is on-trend but if it holds some meaning for you.

Remember that taxes may apply to NFTs and the cryptocurrency used to buy them. NFTs and cryptocurrencies should be included in the virtual digital assets subject to withholding tax under the Indian Budget 2022 proposal, which would go into effect on July 1. Another suggestion is a tax deduction at the source. Since it is unclear how the taxation will operate, you might wish to consult a tax expert before considering adding NFTs to your portfolio.

In light of this, treat NFTs as you would any other investment:

• Do your homework.
• Understand the dangers, including the possibility that you could lose all of your invested rupees.
• If you decide to proceed, do so with a healthy dosage of caution.